Morning Brief: Californian Cities Confront Cash Crunches

James Penman, city attorney general of San Bernardino who has called into question the validity of the city’s last sixteen annual budgets, spoke at the city council chambers yesterday (Alex Gallardo/Courtesy Reuters).

James Penman, city attorney general of San Bernardino who has called into question the validity of the city’s last sixteen annual budgets, spoke at the city council chambers yesterday (Alex Gallardo/Courtesy Reuters).

Blog Post

Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

On Tuesday, San Bernardino’s city council voted to become the third Californian city to file for bankruptcy in the last month (LAT). While Stockton, Mammoth Lakes and San Bernardino each faced unique circumstances, other Californian cities have budget problems from rising costs and a struggling economy. Escalating pension costs have been particularly burdensome; pension spending grew an average of 11.4 percent annually from 1999 to 2010 in the largest Californian cities and counties. Cities wishing to avoid bankruptcy’s stigma and legal costs are cutting services and workforces while seeking concessions from employees, but may also face higher borrowing costs as investors grow wary of bonds from the Golden State.

North Carolina’s Local Government Commission (LGC) was the subject of a recent Policy Initiative Spotlight by Steven J. Markovich. While Stockton, CA and Harrisburg, PA default on bonds, the LGC has kept North Carolina’s municipalities free of defaults since 1942.

Innovation

Sacrificing Innovation for Profits?

Recent moves by Twitter have raised concern that the firm is asserting greater content control to secure profits, but at the cost of innovation (Reuters). Twitter is restricting the use of messages produced by its users on other sites such as LinkedIn to keep traffic and advertising opportunities on its site, but in the process is upsetting third-party developers and other partners. It’s an example of the tension between a firm’s interest in long-term growth and investor’s desire for a payoff.

Innovation.Read more on how the U.S. capacity to innovate could play a chief role in economic growth.

Infrastructure

The Benefits of Greater Energy Independence

Oil and natural gas released through hydraulic fracturing (“fracking”) of shale rock will increase U.S. energy production and independence (Project Syndicate). Harvard's Joseph S. Nye Jr. argues that soaring domestic energy production will shift the United States’ balance of energy imports and exports, decreasing the U.S. trade deficit and creating new American jobs. Independence will not be complete, he says. The U.S. economy will still remain sensitive to oil price shocks, but decreased reliance on foreign suppliers should increase the nation’s bargaining power.

The transformation of the U.S. energy market created by new extraction techniques for oil and gas has some predicting a renaissance for U.S. manufacturing based on lower, stable energy costs. Renewing America contributor Steven J. Markovich examined those claims and argued the impact will likely be modest.

Infrastructure.Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness.

Education and Human Capital

Declining Economic Mobility

A recent Pew report found that while the incomes of most Americans exceed that of their parents, an individual's ability to move into a different socioeconomic class was weak (NYT). The rich are likely to stay rich; 40 percent of those born into the top quintile of the income distribution stay there as adults. Few embody the classic rags-to-riches story; only 4 percent of those born into the lowest income quintile rise to the top one, while 40 percent are likely to stay at the bottom.

ACLU Sues Michigan for Failing to Teach Kids to Read

The American Civil Liberties Union (ACLU) is filing a class-action lawsuit against the State of Michigan and a Detroit area school district for violating the state’s unique “right to learn to read” law (Washington Post). The first suit of its kind, the complaint alleges that students determined not proficient in reading in grades four and seven are not being provided the “special assistance” the law requires to bring them to grade level within a year.